New legislation targets shady franchising practices and aligns B.C. with other provinces

Thanks to B.C.’s new Franchises Act, set to come into effect February 1, franchisees in the province can breathe a small sigh of relief. More than four years in the making, the act will make it more difficult for underhanded franchisors to hide behind arcane lease clauses, sealed financial records and ethereal sales projections.

“It should cut down the opportunity for deceptive practices and exploitation within the franchise relationship,” said Greg Blue, senior staff lawyer at British Columbia Law Institute, which wrote a consultation paper and a report about franchise legislation in B.C. Blue stressed that the protection afforded by the legislation isn’t one-sided.

“The benefits of the Franchises Act do not flow in only one direction,” he said. “It is helpful to franchisors as well by creating much more certainty around the standard of pre-contractual disclosure in franchising.” Though less common, in some instances franchisees accuse franchisors of deceptively overselling a failing venture.

According to the Canadian Franchise Association (CFA), nationally the industry generates $68 billion annually and employs one in 14 working Canadians. As Canada’s third most populous province, British Columbia plays a significant role in Canadian franchising, yet B.C. has taken slowly to devising rules for industry governance (Alberta enacted its Franchise Act in 1980).

And while the B.C. Law Institute’s consultation paper and final report on the efficacy of adopting legislation focused little on publicized nightmare experiences reported by numerous franchisees, it did address the most obvious business risk they face.

“It is frequently, though certainly not invariably, the case that franchisees are not on equal terms with franchisors in relation to business sophistication, finances and access to expert advice,” Blue said.

Ian Jenkins is familiar with the unlevel playing field traditionally faced by franchisees in B.C. Last year Business in Vancouver covered the story of his tormented franchise experience. Jenkins said that aside from being beset by problems such as a supply shortfall and faulty equipment that didn’t meet regulatory standards, he was deceived about the profitability he could expect. Jenkins, who is suing the franchisor, is still awaiting his day in court.

The report outlined a need to align B.C. practices with principles of the 1995 Agreement on Internal Trade, which pushes for the reconciliation of regulatory trade standards between provinces (B.C. will become the sixth province to adopt such legislation).

Reputable franchises with outlets across Canada already apply fair practices in most cases, the report said, and they commonly follow rules mandated in other provinces. B.C.’s legislation will bring it in line with franchise rules across Canada.

According to the new rules, franchisors will be required to provide prospective franchisees a disclosure document before a franchise agreement is signed. “There will be less scope for deception and abuse in the pre-contractual phase,” Blue said.

Prior to the Franchises Act, if franchisors acted in bad faith, misrepresented the profitability of their business or failed to disclose important business details, franchisees could rely only on principles of tort law for redress. Revoking the contract often proved near-impossible, and cases invariably became financially (and emotionally) costly “he said, she said” battles.

The act’s disclosure rules are aimed not only at preventing such cases, but also at creating legal obligations that can be applied to cases requiring redress.

“Franchisees are given the information they need to understand what they are getting into, [with] less scope for asserting afterwards that deception and abuse took place if that was not the case,” Blue said.

The move toward legislative uniformity across Canada aligns with many of the franchise relationship principles espoused by the CFA. Lorraine McLachlan, the association’s president and CEO, agrees that B.C.’s new legislation builds a better business environment for franchisors and franchisees alike.

“CFA worked with the B.C. government throughout the development process,” she said. “The B.C. franchise legislation is uniform in its approach to franchise disclosure, and has adopted best practices in many aspects.”